Oil &amp; Gas Boom 2014: Creating A Rail Renaissance

David Blackmon
, ContributorOpinions expressed by Forbes Contributors are their own.

One of the significant out-growths of America’s nascent Shale oil and gas boom is the subsidiary booms it is creating in other industries. Businesses that either service the oil and gas industries or rely on its end products as feedstock for products of their own are bringing thousands of jobs back from overseas and investing billions of dollars in new domestic infrastructure.

Nowhere has this direct cause and effect been any more apparent than in America’s rail industry, and nowhere is this impact more visible than in the Eagle Ford Shale region, where four major new rail terminals have opened in the last two years. Media coverage of this rail renaissance has focused on increased rail transport of crude oil from areas where the necessary pipeline infrastructure doesn’t yet exist. And rail transport has been a godsend in plays like the Bakken Shale in North Dakota, for that reason, and because of rail’s versatility in being able to route crude oil shipments to any number of market and refining centers.

But the most recent Eagle Ford region rail yard to open – the Southton Railyard just south of San Antonio - has a different initial focus for its transport services: Sand. Anyone familiar with the technology of hydraulic fracturing knows that sand, in large quantities, is a significant ingredient to the success of the process of “fracking” any shale well. Sand is pumped into the well along with water and chemicals to not only help create the fractures in the very dense shale rock below, but to also serve as the “proppant” that holds the fractures open against immense geologic pressure, allowing the oil and natural gas to flow through them and into the production tubing.

As Kevin Bowen, CEO of Shale Support Services, the developer of Southton Railyard, described to me earlier this week, “Sand has become a hot commodity because of the shale boom, and producers who can move it efficiently and cost-effectively will be the winners.” Southton’s anchor tenant, Santrol, is the largest U.S. provider of sand for hydraulic fracturing operations. Southton can off-load rail cars in about five minutes, and its four 13o-foot tall sand silos (pictured below) can store up to 20,000 tons of sand at any given time.

Southton Railyard Sand Silos

Southton’s location just off the intersection of Interstate 37 and Loop 410 at the southern tip of San Antonio is advantageous because, as Bowen pointed out, “from our facility, trucks have easy access to Highway 281, I-35, and I-10, and can be anywhere in the Eagle Ford region within 2 hours.”

While the sand side of the business is Southton’s initial focus, Bowen says the goal is for the yard to ultimately move any product relevant to the shale business. “Crude oil, guar gum, resins, liquids, bayrite, equipment – ultimately we plan to move them all,” he said.

Critics of shale development like to contend that plays like the Eagle Ford are very short term events, likely to move from boom to bust in just a few years. The initial infrastructure investment at Southton of $54 million, along with similarly large investments in major rail yards near Three Rivers, Cotulla and Encinal, tells a different story to anyone paying attention. Investors willing to shell out that kind of money are anticipating a development time frame of decades, not a few years. If money talks, it is telling anyone who will listen that the Eagle Ford boom is going to last for many years to come.

Another positive aspect of all of this investment in rail is that it is building out a regional infrastructure network that will remain in place for decades beyond the development time for the Eagle Ford play. This railroad network will be there to service the South Texas economy as it moves into future phases of development.

If you’re tired of congestion on Texas highways due to heavy truck traffic, it’s instructive to note that every rail car on the tracks is equivalent to two 18-wheelers on the highway. So just as we saw a national transition from rail transport of goods and equipment over the previous half-century, the oil and gas boom is laying the groundwork and paying for the infrastructure to lead to increased rail transport in the coming half-century. That will, in turn, help to ease pressure and reduce wear and tear on the nation’s system of highways.

For a boy like me, who grew up in Beeville hearing the sound of that Southern Pacific train whistle as it passed through town in the middle of the night, only to see those tracks get torn up in the 1980s as the transition to truck transport was in its heyday, this revival of the nation’s rail industry is music to my ears. It’s just one more way the current shale oil and gas boom benefits all Americans.